The coal industry's multi-million-dollar advertising and lobbying campaign in the run-up to the last federal election was bankrolled by money deducted from state mining royalty payments and meant to fund research into "clean coal".

Key points:

In 2013 coal lobby changed mandate of Coal21 to allow its funds to be used for "coal promotion"

The mining industry spent $2.5 million pushing the case for lower-emissions, coal-fired power plants in the run-up to last year's election — a cause the Federal Government has since taken up with gusto.

The source of the funds was a voluntary levy on coal companies, originally intended to fund research into "clean coal" technologies, which coal producers could deduct from state mining royalties.

Instead, some of the money raised paid for phone polling, literature and TV ads that declared "coal — it's an amazing thing".

The funds were channelled through the Australian Coal Association Low Emissions Technology Limited (ACALET), formerly owned by the Australian Coal Association and now part of the Minerals Council for Australia.

Queensland Government documents list "the COAL21 levy payable to Australian Coal Association Low Emissions Technologies Ltd (ACALET)" as an eligible deduction against royalty payments in the state.

A "coal research" levy in NSW is also deductible against coal mining royalty payments, under a deal signed off by the disgraced former NSW Labor minister Ian Macdonald, who was charged with criminal offences after an ICAC inquiry.

But it was not clear from the ABC's research whether the NSW money funded the body behind the coal industry's campaign.

Coal21 was launched more than a decade ago, with the aim of creating a $1 billion fund for research into "clean coal" technologies like carbon capture and storage (CCS), but only a fraction of the money was raised or spent.

With a lack of research projects to finance, the levy was suspended in 2012. In 2013, the coal lobby changed the mandate of Coal21 to downplay research and allow its funds to be used for "coal promotion".

Critics 'outraged' by industry's use of funding

Funding the industry campaign from money that otherwise would have been paid to state governments as mining royalties has outraged the Federal Opposition and the coal industry's critics.

"It is a huge shame that Coal21 funding, which was mean to go into genuine CCS research, is now being used to finance advertising and political campaigns," Labor's environment spokesman Mark Butler said.

Australia Institute chief economist Richard Denniss said it was "scandalous".

"Every dollar spent on advertising as part of the coal industry campaign was a dollar that should have gone into consolidated revenue," he said.

"Citizens funded a propaganda campaign with money that would otherwise have gone into public revenue to fund schools and hospitals."

NSW Greens MP Jeremy Buckingham said it was "an outrage that royalties that should have gone to funding police, schools and hospitals had instead gone into propping up the clean coal myth and the PR campaign of a dying industry".

In a written statement, a Minerals Council spokesperson said:

"The Coal21 Fund's coal levy was nil between July 2012 to June 2016 for all contributors in Queensland and nationally. Contributors to the fund are not entitled to a deduction from coal royalties in other states.

"Therefore ... contributors to the Coal21 fund would not have claimed any deductions against their coal royalties during this period."

However, critics dismissed this as a red herring, because the coal industry's advertising and lobbying campaign was funded by money accumulated when the levy was in place.

In the wake of the coal industry campaign, the Federal Government has embraced the push for lower-emissions, coal-fired power stations and is intending to use considerable public money to fund the technology.

It wants the Clean Energy Finance Corporation (CEFC), established to fund zero or very low carbon emissions technology, to be able to fund coal projects.

That will require changing the CEFC's current mandate which prohibits funding technology that reduces emissions by less than 50 per cent and excludes funding of coal carbon capture and storage.

The office of the Federal Environment Minister Josh Frydenberg has been contacted for comment.